Turkey's investment incentive system is based on the Council of Ministers' Decree (CMD) numbered 2012/3305 that was published in June 2012. We can say that the latest CMD has paved the way for quite important steps for Turkey's investment incentive system. Particularly, we must state that the mechanisms for “Encouragement of Prioritised and Strategic Investments”, which have been introduced into the system for the first time, form the most remarkable aspect of this new incentive system. When we look at the past four-year period faced by our incentive system, we see that due to heavy conditions brought by the CMD, the investments that were designated as “strategic investments” and were granted certificates remained at a restricted number of 20-25. This situation caused the subjects falling within the scope of prioritized investments to continuously increase upon the request of investors, and the number to be more than doubled in time. In summary, from 2012 to now, the concept of “prioritized investments” within the context of subjects of investments that are wished to be encouraged in order to increase Turkey's manufacturing and export capacity has gained crucial importance.
It used to be expressed, in particular, by the International Investors Association (YASED) that the existing investment incentive model – especially within the context of strategic investments – for Turkey, which has low savings ratio and a high need for direct international capital, did not have sufficient flexibility, and with a more flexible model, it would be possible to direct into Turkey international investments of immense size.
The “Draft Law on Establishment of Turkish Wealth Fund and on Amending Certain Laws and Decree Laws” submitted to the Turkish Parliament on August 2, 2016 contains a revolutionary draft article on this subject. Let's now have a look at the details…
How Does the Model Introduced by the Draft Law Look Like?
It can be said that a very flexible incentive system is adopted by the draft law. It would be useful to state that this Draft Law will be a milestone for Turkey's investment incentive history.
According to the Draft Law, the Council of Ministers will be authorized to grant the investors the opportunity to benefit from part or all of very important supports – which are again determined with the Draft Law- for their investments that are agreed to be supported by the
Economic Coordination Committee (ECC). In summary, for each field of investment determined by ECC, the Council of Ministers will be authorized to create a flexible and special encouragement/incentive mechanism. It should be underlined that the coming step will have a revolutionary importance for our encouragement/incentive system.
Which Incentives the Council of Ministers Grant to Investors?
We can say that the Draft Law gives the Council of Ministers enormous authorization to take action on this subject. The Council of Ministers may resolve:
• to implement the corporate tax rate with a reduction of up to 100%, and set the investment contribution rate with the condition not to exceed 200% or grant corporate tax exclusion with the condition to be limited with the earnings made out of the investment, for up to 10 accounting periods after the inesvtment is put into operation, to grant the right to benefit from “income tax withholding” for the employees employed, which can presently be implemented only for the provinces in the 6th Territory,
• to grant customs tax exemption,
• with regard to treasury's immovables, to establish easement right free of charge or grant occupancy permit for a period of 49 years and that Treausury immovable be transferred without charge with the condition that the investment is completed and the envisaged employment condition is met for 5 years,
• that the investors' insurance premiums' employer share be met for up to 10 years,
• that the part of up to 50% of energy consumption expenditures relating to the investment during the operating period be met for upto 10 years,
• that interest or share of profit support or grant support be provided for up to 10 years for the investment loan used for financing of fixed investment amount,
• that, for each qualified employee in such number as designated, who are of special importance for the investment, wage support be provided for up to 20 times of the monthly gross amount of minimum wage for a period not to exceed 5 years,
• to become partner to the investment, with the condition that it will not exceed 49% of the investment amount, and with the condition that the acquired shares will be offered to the public or sold to the investor within 10 years,
and will be able to implement one or more of the above-listed opportunities for the investor. In short, we should state that the incentives to be granted under the authority of the Council of Ministers is far beyond the scope of the current incentive system.
The Draft Law Brings Purchase Guarantee for Investment Product!
The opportunities provided to the investors are not limited with those mentioned above. It will also be possible to grant “purchase guarantee” for the investment product on project basis, the amount and time period for which will be designated by the Council of Ministers. In addition, in circumstances where necessitated by the project, all kinds of infrastructure investments may also be made based on the Council of Ministers Decree.
Investors' Bureacratic Burden to be Totally Eliminated As it may be known, one of the major complaints raised by national and international investors is that the bureacractic procedures in Turkey are very complex and require application to multiple authorities. The investor has to spend months or even years to obtain license, permit, etc for its investment in most of the cases. It is obvious that this weakens the competitiveness of our country in luring investors.
According to the Draft Law, the Council of Ministers will also be capable of bringing exceptions for permit, allocation, license, and registrations and other restrictive provisions brought by other laws with regard to investments that are determined by the ECC, and that can benefit from the above-listed opportunities. As such, the investor will fall an important burden of legal and administrative bureaucratic procedures.
What is Next?
We have to state that the changes which are planned for Turkey's incentive system – both for national and international investors –with the aim of increasing Turkey's investment attraction capacity represent major steps. If the Draft Law is enacted, - for investments to be designated
fa by ECC- Turkey will enter an “era of incentive packages” which include strong tailor-made incentives, with completed permit/licence and similar processes, as well as purchase guarantee for the product to be produced.
The next step is to explain this incentive package to all national and international investors and to lure the investments into Turkey. Not only the Government or the State, but every single person, primarily including NGOs, business world and the media, has an important role to play in introducing the draft law after it enacted.
Emrah Akın, YMM Partner
Tax KPMG, Turkey